March 8, 2023

The Government Update

​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​is issued by the Innovative Payments Association twenty times a year as a service to members.
Editors: Brian Tate, President and CEO, IPA; Ben Jackson, COO, IPA;  Eli Rosenberg, Partner, Baird Holm LLP; and Gray Derrick, Partner, Baird Holm LLP. Please address comments and suggestions to: [email protected].

Upcoming IPA/FBI Events
Meet the New York Field Office -- If you or your colleagues are in New York City, we will be hosting a session with the FBI at MasterCard's Tech hub on March 27.  FBI agents from the New York field office will present on cyber-crime and financial crimes trends. This follows on a similar event that we did last year in Atlanta. The goal is to introduce payments teams to their local field offices to help foster cooperation. You can learn more and register here.

Webinar: The Value of SARs -- In a Webinar on April 20th the FBI will present on how the information that industry provides in SARs helps law enforcement with their investigations. They will also discuss how the Internet Crime Complaint Center can be a resource for helping your customers affected by cyber-crimes.  Learn more and register here.  
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2023 Innovative Payments Conference
The 2023 Innovative Payments Conference will be held on May 7-9th. The IPA’s IPC is the must-attend annual event for the payments community attracting the attention and support of the industry’s most influential players. Benefit from two days of cutting-edge content, discussions and enhanced networking as you engage directly with those leading the way in payments compliance, legislation, regulation and innovation.

HFSC Republicans Send Letter to CFPB Dir. Chopra on Overdraft
Republican members of the House Financial Services Committee sent a letter to CFPB Director Rohit Chopra regarding the recently released Fall Rulemaking Agenda for 2022. The letter notes the inclusion of Overdraft Fees in the pre-rule stage, and the Bureau’s abstract on the rule which states they will examine whether an overdraft fee is considered a finance charge under Regulation Z, which implements the Truth in Lending Act. 

The letter further states that identifying overdraft fees as a finance charge would limit, and possibly outright prevent, the ability of financial institutions to provide emergency, short term liquidity to consumers who need it most. The letter closes by urging the director to withdraw the pre-rule on overdraft.

Reps. Luetkemeyer, Huizenga, and Barr Question Dir. Chopra's Schedule
Reps. Blaine Luetkemeyer, Bill Huizenga, and Andy Barr, Republican leaders of the House Financial Services Committee, sent a letter to CFPB Director Rohit Chopra, questioning Director Chopra’s statement during his most recent appearance before the Committee that he has “done more industry outreach with those affected by the CFPB than both of my predecessors.” 

Using the publicly available Leadership Calendar, the Congressmen note that the Director’s statement is likely inaccurate, and point out that large blocks of time are either left blank, or do not identify who specifically the Director has met with.  
The letter concludes with several questions for response on the contents of Dir. Chopra’s public calendar and the process for making it public. Additionally, they ask for a comprehensive list of the industry outreach the Director has conducted while in office.

Smith, Comer, Ways and Means Republicans Introduce Legislation to Recover Hundreds of Billions in Stolen Unemployment Benefits
House Ways and Means Committee Chairman Jason Smith and House Oversight Committee Chairman James Comer, along with House Ways and Means Committee Republicans, introduced H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act, which would provide states with incentives to investigate and recover lost funds, fight and prevent future fraud, and extend the statute of limitations for prosecuting fraud. Specifically, the bill would:

• Allow states to keep 25 percent of recovered fraudulent overpayments of federal funds,
• Allow states to use recovered funds to improve program integrity and fraud prevention,
• Allow states to keep 5 percent of state UI overpayments, conditioned on meeting data matching integrity conditions and dedicating those funds to preventing future fraud, and
• Extend the statute of limitations for criminal charges or civil actions from 5 to 10 years.
  

More information can be found in this one-pager. 

CFPB Orders TitleMax to Pay a $10 Million Penalty for Unlawful Title Loans and Overcharging Military Families
The CFPB fined TitleMax for violating the rights of military families and other consumers in providing auto title loans. Specifically, the CFPB found that TitleMax violated the Military Lending Act by extending prohibited title loans to military families and, oftentimes, by charging nearly three times the 36% annual interest rate cap. TitleMax then tried to hide their unlawful activities by altering the personal information of military borrowers to circumvent their protected status. The CFPB also found that TitleMax increased loan payments for borrowers by charging unlawful fees. The CFPB’s order ends TitleMax’s illegal activities, and requires the company to pay more than $5 million in consumer relief and a $10 million civil money penalty.

Joint Regulator Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities
The Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency issued a statement on the liquidity risks to banking organizations presented by certain sources of funding from crypto-asset related entities. The statement reminds banking organizations to apply existing risk management principles and provides examples of practices that could be effective. Banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.

Highlights:

• In light of events that highlight a number of risks associated with crypto–assets and crypto-asset sector participants, the agencies issued a statement in January 2023 addressing key risks and are now issuing a statement related to liquidity risks.
• Banking organizations that use certain sources of funding from crypto–asset–related entities may be exposed to heightened liquidity risks due to the unpredictability of the scale and timing of deposit inflows and outflows.
• Examples of these sources of funding include, among others, deposits placed by a crypto–asset–related entity that are for the benefit of the crypto–asset–related entity’s customers (end customers) and deposits that constitute stablecoin–related reserves. 
• In light of these heightened risks, it is important for banking organizations that use certain sources of funding from crypto–asset–related entities to actively monitor the liquidity risks inherent in such funding sources, and establish and maintain effective risk management practices.
  
  

FinCEN Issues Alert on Mail Theft-Related Check Fraud
FinCEN has issued an alert urging financial institutions to be vigilant in identifying and reporting check fraud schemes targeting the U.S. mail. The alert notes that despite the declining use of checks in the U.S., criminals have been increasingly targeting the U.S. mail and USPS mail carriers since the COVID-19 pandemic to commit check fraud. According to the alert, “Criminals typically steal personal checks, business checks, tax refund checks, and checks related to government assistance programs, such as Social Security payments and unemployment benefits. Following the initial theft and fraudulent negotiation of the stolen checks, criminals may continue to exploit their victims by using the personal identifiable information found in the stolen mail for future fraud schemes, such as credit card fraud or credit account fraud.”
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More information can be found in the FinCEN Alert or in the FinCEN press release.

CFPB Highlights Public Benefit Fees
The CFPB published an issue spotlight discussing fees associated with various financial products, such as prepaid cards, and how, according to the CFPB, fees associated with those products may affect individuals ability to fully access public benefits such as Social Security and unemployment compensation. This issue spotlight continues the CFPB’s recent actions, through press releases and blog posts, on fees that consumers face when using financial products and services. 

In this particular publication, available here, the CFPB alleges that public benefits are eroded by fees, fees can result in uneven access to benefits across states, individuals experience inadequate customer service when dealing with unrecognized charges, and consumers may be trapped by lack of choice and competition.

CFPB Publishes New Findings on Financial Profiles of BNPL Borrowers
The CFPB published a report analyzing the financial profiles of BNPL borrowers. A link to the report is in the agenda, but some high level findings were that 95% of BNPL borrowers had at least one other credit product; Black, Hispanic, and female consumers are more likely than average to use Buy Now, Pay Later products, along with consumers with income between $20,001-$50,000; BNPL borrowers surveyed also had lower credit scores, leading to higher rates on traditional credit products, making BNPL loans with no interest an attractive alternative. 

The data for this study came from a 2022 voluntary survey of anonymized credit records, and it’s interesting to point out that the CFPB specifically notes that the report cannot distinguish whether Buy Now, Pay Later usage leads to more delinquencies on other obligations or whether consumers who are already in distress are more likely to use Buy Now, Pay Later loans to pay off higher-interest debt.

Democratic Senators Send Letter to Banking Regulators on Zelle
Banking Committee Chairman Sherrod Brown, along with Democratic members Jack Reed, Robert Menendez, Elizabeth Warren, and Mark Warner, addressed the Federal Reserve, FDIC, NCUA, and OCC in a letter last week urging a close review and examination of the customer reimbursement and anti-money laundering practices of banks that participate in the Zelle network. Further, the letter also asks the regulators to coordinate their efforts with the CFPB. 
The Senators raised “concerns about the safe and sound operation of Zelle because depository institutions currently take the position that they are under no obligation under the EFTA to make their customers whole when fraudsters use the network to steal their hard-earned money.”

Supreme Court Decides MoneyGram Unclaimed Property Case
The U.S. Supreme Court issued its long-awaited decision in Delaware v. Pennsylvania, a case we have previously discussed involving abandoned MoneyGram funds. In a unanimous decision, the Supreme Court held that Agent Checks and Teller’s Checks are covered by the Federal Disposition Act (FDA) and, as a result, abandoned proceeds would generally escheat to the State where the instrument was purchased. In the opinion, drafted by Justice Kentanji Brown Jackson, the Court held stated “[t]he plain text of the FDA applies to not only money orders and traveler’s checks but also written instruments that are ‘similar’ to those financial products.” 

The Court established a two-prong test for determining if a financial instrument is sufficiently similar to a money order, and therefore falls under the FDA. First, it must be a prepaid written instrument used to transmit money to a named payee; and second, it must inequitably escheat to the holder’s state of incorporation under the federal common law’s secondary escheatment rule due to the holder’s business practice of not retaining a record of the instrument owner’s address. In the case at hand, because Moneygram does not generally collect creditor addresses as a matter of business practice, they do not have adequate records to follows the common law’s escheatment rule, the FDA applies, and the abandoned proceeds will generally escheat to the state where the product was purchased.

New Federal Bills
H.R. 1163, The Protecting Taxpayers and Victims of Unemployment Fraud Act
This bill, sponsored by Rep. Jason Smith (R-MO-08), would provide financial incentives for states to recover fraudulently paid Federal and State unemployment compensation. The bill was marked up and reported favorably from the House Ways and Means Committee on 2/28/23 by a vote of 20-17.
 
H.R. 1165, Data Privacy Act of 2023
This bill, sponsored by Rep. Patrick McHenry (R-NC-10) would create a federal data privacy standard, and would preempt preexisting state frameworks. This bill bway marked up and reported favorably by the House Financial Services Committee on 2/28/23 by a vote of 26-21.